No end in sight for withholding tax deadlock

Speaking to a high-level group of officials in Brussels, Juncker – who is also Luxembourg’s finance minister – cited the UK’s opposition to banking secrecy for the situation.

The problem arose following a 1997 European Union agreement to adopt a co-existence model for taxing savings income. It allowed member states to either levy a withholding tax on income for non-resident savings or exchange information about such income. But, according to the Financial Times, Juncker has claimed ‘the UK did not respect it’.

Chancellor Gordon Brown has also irritated other European finance ministers with a proposal to exchange data between tax authorities which would undermine traditional banking secrecy conventions in Luxembourg and elsewhere.

The UK has insisted the end of banking secrecy has to go together with tax harmonisation, but the prime minister has implied such insistence had distorted the EU’s original goals.

For his part, Juncker does ‘not accept’ that banking secrecy should be abolished in Luxembourg.

Finance ministers are due to debate the savings tax directive on 5 June in Luxembourg but they are not expected to be able to make any progress.

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